Comments on Venezuela's move to shut forex market

www.forbes.com Reuters, 01.22.03, 12:12 PM ET

CARACAS, Venezuela, Jan 22 (Reuters) - The following are statements by officials, economists and analysts reacting to a move on Wednesday by Venezuela's central bank to close the foreign exchange market for five trading days.

The closure is seen as an attempt by the government to stem capital flight during a crippling seven-week-old opposition strike against President Hugo Chavez.

ARMANDO LEON, ONE OF THE DIRECTORS ON THE BOARD OF THE VENEZUELAN CENTRAL BANK: "This is a decision taken by a collegiate group, which I obey and respect but do not share because I believe there were other ways to solve the crisis, such as fiscal and monetary measures.

"I don't agree with exchange restrictions because history has shown in this country that they don't bring benefits and the costs are very high."

RAMON ROSALES, MINISTER OF PRODUCTION AND TRADE: "The aim of this measure is to preserve our (international) reserves, which are the only guarantee of Venezuela's recovery after this oil sabotage (the opposition strike).

"The dollar had taken off ... we had to stop this."

JOSE CERRITELLI, BEAR STERNS, ANDEAN DEBT STRATEGIST: "It doesn't look like they have full foreign exchange controls ready. This looks more like a knee-jerk reaction of theirs to the currency weakness.

"In the functioning of the economy, this is another arm tied behind the back. Now the private sector no longer has a market exchange rate to guide it for transactions. The private sector is further handicapped in doing business.

"In its first impact, it's not so negative. It gives seniority to foreign debt holders. It provides some hope that at least for a short term, capital flight is curbed.

"Although foreign exchange controls initially slow capital flight, eventually people learn to circumvent them and you have a black market that makes it profitable to engage in capital flight. In the long term, people look to escape the controls by taking their money out."

CARLOS FERNANDEZ, PRESIDENT OF THE FEDECAMARAS PRIVATE BUSINESS ASSOCIATION AND A LEADER OF THE OPPOSITION STRIKE: "This is going to affect the operation of most industries. Remember that in the food sector, almost 60 percent of raw material inputs are imported. It's also going to have a heavy effect on the health sector.

"These currency measures will only increase the impact of the strike because they create more uncertainty and limit the ability to buy raw materials.

"With this move, the whole economy will fall into a kind of paralysis. The economy is being held hostage to the political situation."

ROGER SCHER, FITCH RATINGS, HEAD OF LATIN AMERICAN SOVEREIGN RATINGS: "This was to be expected. Capital controls from a sovereign ratings perspective are not a good thing in the long term. But when you are in crisis and you are trying to shore up the foreign exchange position for debt service and other immediate needs, then it can be helpful."

FRANCISCO RODRIGUEZ, HEAD OF THE ECONOMIC AND FINANCIAL ADVISORY OFFICE OF THE NATIONAL ASSEMBLY: "This measure reveals the state of desperation that the government finds itself in as a result of the fiscal crisis and the scarcity of foreign exchange caused by the oil strike.

"This is a short-term measure that will do nothing to restore macro-economic balance, but on the contrary will lead to a dangerous instability.

"From the economic point of view, there were other solutions not requiring exchange controls. The level of reserves had not reached critical levels. This measure could be motivated by not only economic but also political considerations."